The role of managerial finance. (Chapter 1) презентация

legal forms of business organization.
LG3 Describe the goal of the firm, and explain why maximizing the value of the firm is an appropriate goal for a business.

to economics and accounting.
LG5 Identify the primary activities of the financial manager.
LG6 Describe the nature of the principle-agent relationship between the owners and managers of a corporation, and explain how various corporate governance mechanisms attempt to manage agency problems.

of managing money.
At the personal level, finance is concerned with individuals’ decisions about:
how much of their earnings they spend
how much they save
how they invest their savings
In a business context, finance involves:
how firms raise money from investors
how firms invest money in an attempt to earn a profit
how firms decide whether to reinvest profits in the business or distribute them back to investors.

finance concerned with the design and delivery of advice and financial products to individuals, businesses, and governments.
Career opportunities include:
banking
personal financial planning
Investments
real estate
insurance

duties of the financial manager working in a business.
Financial managers administer the financial affairs of all types of businesses—private and public, large and small, profit-seeking and not-for-profit. Tasks include:
developing a financial plan or budget
extending credit to customers
evaluating proposed large expenditures
raising money to fund the firm’s operations.

and subsequent responses by governmental regulators, increased global competition, and rapid technological change also increase the importance and complexity of the financial manager’s duties.
Increasing globalization has increased demand for financial experts who can manage cash flows in different currencies and protect against the risks that naturally arise from international transactions.

by the CFA Institute, the CFA program is a graduate-level course of study focused primarily on the investments side of finance.
Certified Treasury Professional (CTP) – The CTP program requires students to pass a single exam that is focused on the knowledge and skills needed for those working in a corporate treasury department.
Certified Financial Planner (CFP) – To obtain CFP status, students must pass a ten-hour exam covering a wide range of topics related to personal financial planning.

(AAFM) – The AAFM administers certifications including the Charter Portfolio Manager, Chartered Asset Manager, Certified Risk Analyst, Certified Cost Accountant, and Certified Credit Analyst.
Professional Certifications in Accounting –Professional certifications in accounting include the Certified Public Accountant (CPA), Certified Management Accountant (CMA), and Certified Internal Auditor (CIA).

by one person and operated for his or her own profit.
A partnership is a business owned by two or more people and operated for profit.
A corporation is an entity created by law. Corporations have the legal powers of an individual in that it can sue and be sued, make and be party to contracts, and acquire property in its own name.

Business Organization

take actions that are expected to increase the share price.

Figure 1.2 Share Price Maximization Financial decisions and share price

the highest possible share price for at least three reasons:
Timing is important—the receipt of funds sooner rather than later is preferred
Profits do not necessarily result in cash flows available to stockholders
Profit maximization fails to account for risk

Which Investment is Preferred?

employees, customers, suppliers, creditors, owners, and others who have a direct economic link to the firm.
A firm with a stakeholder focus consciously avoids actions that would prove detrimental to stakeholders. The goal is not to maximize stakeholder well-being but to preserve it.
Such a view is considered to be "socially responsible."

or moral judgment that apply to persons engaged in commerce.
Violations of these standards in finance involve a variety of actions: “creative accounting,” earnings management, misleading financial forecasts, insider trading, fraud, excessive executive compensation, options backdating, bribery, and kickbacks.
Negative publicity often leads to negative impacts on a firm

ethicist, suggests that the following questions be used to assess the ethical viability of a proposed action:
Is the action arbitrary or capricious? Does the action unfairly single out an individual or group?
Does the action affect the morals, or legal rights of any individual or group?
Does the action conform to accepted moral standards?
Are there alternative courses of action that are less likely to cause actual or potential harm?

to:
reduce litigation and judgment costs
maintain a positive corporate image
build shareholder confidence
gain the loyalty and respect of all stakeholders
The expected result of such programs is to positively affect the firm’s share price.

depends on the size of the firm.
In small firms, the finance function is generally performed by the accounting department.
As a firm grows, the finance function typically evolves into a separate department linked directly to the company president or CEO through the chief financial officer (CFO) (see Figure 1.1).

related to economics.
Financial managers must understand the economic framework and be alert to the consequences of varying levels of economic activity and changes in economic policy.
They must also be able to use economic theories as guidelines for efficient business operation.
marginal cost–benefit analysis

economic principle that states that financial decisions should be made and actions taken only when the added benefits exceed the added costs
Marginal cost-benefit analysis can be illustrated using the following simple example.

marginal-cost benefit analysis to decide whether to replace a computer:

are closely-related and generally overlap.
In small firms accountants often carry out the finance function, and in large firms financial analysts often help compile accounting information.
One major difference in perspective and emphasis between finance and accounting is that accountants generally use the accrual method while in finance, the focus is on cash flows.

profit or experiences a loss, it must have a sufficient flow of cash to meet its obligations as they come due.
The significance of this difference can be illustrated using the following simple example.

following activity last year:

Sales: $100,000 (1 yacht sold, 100% still uncollected)
Costs: $80,000 (all paid in full under supplier terms)

performance under the accounting method (accrual basis) versus the financial view (cash basis):

with respect to decision-making:
Accountants devote most of their attention to the collection and presentation of financial data.
Financial managers evaluate the accounting statements, develop additional data, and make decisions on the basis of their assessment of the associated returns and risks.

and laws by which companies are operated, controlled, and regulated.
It defines the rights and responsibilities of the corporate participants such as the shareholders, board of directors, officers and managers, and other stakeholders, as well as the rules and procedures for making corporate decisions.
The structure of corporate governance was previously described in Figure 1.1.

own relatively small quantities of shares so as to meet personal investment goals.
Institutional investors are investment professionals, such as banks, insurance companies, mutual funds, and pension funds, that are paid to manage and hold large quantities of securities on behalf of others.
Unlike individual investors, institutional investors often monitor and directly influence a firm’s corporate governance by exerting pressure on management to perform or communicating their concerns to the firm’s board.

of all firms.
During the recent decade, corporate governance has received increased attention due to several high-profile corporate scandals involving abuse of corporate power and, in some cases, alleged criminal activity by corporate officers.

oversight board to monitor the accounting industry;
tightened audit regulations and controls;
toughened penalties against executives who commit corporate fraud;
strengthened accounting disclosure requirements and ethical guidelines for corporate officers;
established corporate board structure and membership guidelines;
established guidelines with regard to analyst conflicts of interest;
mandated instant disclosure of stock sales by corporate executives;
increased securities regulation authority and budgets for auditors and investigators.

in which an agent acts on the behalf of a principal. For example, shareholders of a company (principals) elect management (agents) to act on their behalf.
Agency problems arise when managers place personal goals ahead of the goals of shareholders.
Agency costs arise from agency problems that are borne by shareholders and represent a loss of shareholder wealth.

by corporate boards, institutional investors, and government regulations, corporate governance can be strengthened by ensuring that managers’ interests are aligned with those of shareholders.
A common approach is to structure management compensation to correspond with firm performance.

that tie management compensation to share price; one example involves the granting of stock options.
Performance plans tie management compensation to measures such as EPS or growth in EPS. Performance shares and/or cash bonuses are used as compensation under these plans.

governance structure is unable to keep agency problems in check, it is likely that rival managers will try to gain control of the firm.
The threat of takeover by another firm, which believes it can enhance the troubled firm’s value by restructuring its management, operations, and financing, can provide a strong source of external corporate governance.